Classmates.com 2005 Annual Report Download - page 9

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accounts and retention rates. We intend to regularly evaluate the desirability and effectiveness of our pricing plans and may, in the future, make
changes to these plans. We may also offer additional fee-based products and services as well as a wide range of discounted metered plans and
promotions, such as one or more free months of service or discounted rates for an initial period or an extended commitment.
Advertising and Commerce Revenues
We are able to designate the initial Web site displayed to users of our access services during an Internet session. This Web site, or “start
page,” displays sponsored links to a variety of content, products and services, including Internet search. In addition, a significant portion of the
Web pages for our Web-based email, free community-based networking and consumer Web-hosting services are dedicated to advertising
partners. We also display a toolbar on access users’ screens throughout their online access sessions that is always visible regardless of the
particular Web site they visit. The toolbar contains Internet search functionality and a variety of buttons, icons and drop-down menus. On our
free access services, the toolbar is larger than on our pay access services and also contains banner advertisements. We generate revenues from
our Web pages and the toolbar by displaying, or users clicking on, banner, text-link and other advertisements that are linked to advertisers’ and
sponsors’ Web sites, or by users utilizing functionality offerings such as Internet search services.
We also generate advertising and commerce revenues by users clicking on, or by displaying, rich media advertisements in a small window
on the computer screens of certain access users while they initially make a dial-
up Internet connection and immediately prior to terminating their
connection; by delivering email messages on behalf of advertisers or by users clicking on such messages and being referred to sponsors’ Web
sites; by enabling customer registrations for partners; and by providing third parties with data analysis capabilities and other market research
services, such as surveys and questionnaires.
MARKETING AND NEW ACCOUNT ACQUISITION
Our marketing efforts are focused primarily on attracting free and pay accounts, building our brands and up-selling existing free accounts
and pay accounts to new and additional pay services. These efforts include television, Internet, sponsorships, radio, print and outdoor advertising
as well as a variety of distribution initiatives with partners including retailers, personal computer manufacturers and software providers. We also
devote a significant portion of our own advertising inventory to up-sell and cross-sell our pay services. Our internal marketing resources consist
of marketing management, media, creative services, Web development, strategic alliance and business development personnel. We produce a
significant amount of our marketing materials in-house, using state-of-the-art design computers and graphics program techniques.
In addition to our traditional marketing activities, we view our free services as an effective component of our pay account acquisition
strategy. We have not spent significant marketing resources on our free access services since the Merger and have experienced a decrease both in
our active free access account base and in the number of people signing up for free access services. Our active free access account base and the
number of users who convert from our free access services to our pay access services may continue to decrease, particularly if we do not actively
promote our free access services or if we impose additional limitations on our free access services in the future.
We also view our free community-based networking and consumer Web-hosting services as important sources of pay subscribers. We seek
to up-sell the free account bases of these services to pay versions of each service, as well as to Internet access and other pay services. Our
marketing efforts to date for community-based networking and consumer Web hosting have been comprised almost entirely of Internet
advertising and paid search.
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